Hello jd1754 and welcome to The Lemon Fool.
Good first post with some probing questions!
jd1754 wrote:Have been taking a look at these. What is the incentive for them to tender for the PIBS(or restart interest payments), why not just keep cash on hand as they run the book down?
I think you're right that it's hard to see incentive for the society to tender for the PIBS: both issues are pretty small so regulatory compliance and other costs of a tender would be a large factor. Also, with a call option available on the larger MBSP issue they would be able to call them at 6.5% yield in 2030. That's a long way ahead but may be good enough for them; they are also able to purchase them in the market if they feel the urge. Finally, any repurchase is far off unless regulatory capital requirements are significantly loosened.
As for restarting interest payments, the Society is still resolved to make interest payments and have sufficient equity to do so: the only thing preventing payment is a regulatory prohibition because their mix of capital is not correct (as I understand it -- their capital does not meet the "qualitative" requirements). With further run-down of liabilities and if MBS continue to generate profits I expect this problem to fix itself and that interest payments on both issues will resume thereafter. The upcoming Supreme Court case could also have a bearing of course.
Presumably as they have done no new business for several years the UK book is made up of mortgage holders who haven’t been able to remortgage elsewhere. Spanish book not great and has long duration with average LTV 104% no point to repay. So in a scenario they steady the ship are allowed to do new business what gives confidence the board would act in the interest of PIBS holders?
You are right, the interests of the PIBS holders is not the board's primary concern: they are working for the members of the society. However, the interests of the members and the PIBS holders are fairly well aligned as both benefit from a well-run society generating profits: the profits accrue to the members in a winding up, PIBS holders receiving the principal value of their investments. The Spanish book is not great but only 20% of the business and already well provisioned (about £9.35m).
Is this not a different case to B&B as the government wanted access to the profits?
Do you mean no-one is interested in the profits in this business? See my comment above...